MusclePharm Corporation (MSLP) CEO Ryan Drexler on Q1 2022 Results - Earnings Call Transcript

MusclePharm Corporation (MSLP) Q1 2022 Earnings Conference Call May 16, 2022 4:30 PM ET

Company Participants

Ryan Drexler - Chairman & Chief Executive Officer

Sabina Rizvi - President & Chief Financial Officer

John Mills - Managing Partner-ICR, Inc.

Conference Call Participants

Operator

Good afternoon, everyone and thank you for participating on today’s First Quarter 2022 Business Update Call for MusclePharm. Joining us today is MusclePharm’s Chairman and CEO, Ryan Drexler; the company’s President and CFO, Sabina Rizvi.

Following prepared remarks, we will take your questions. As a reminder, in order to ask a question, please go to the Investor Relations section of the company’s website at www.musclepharm.com and you will be able to submit your name and questions on the webcast link.

The discussion today will include forward-looking statements except for historical information herein, matters set forth on this call are forward-looking within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company’s commercial progress, success of its strategic relationships and projections of future financial performance.

These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast, and project, continue, could, may, predict, and will, and variations of such word and similar expressions that are intended to identify such forward-looking statements.

All statements, other than the statements of historical facts that address activities, events or developments, that the company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on current assumptions made based on experience, expected future developments and other factors that the company believes are appropriate under the circumstances.

Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.

Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they’re made. The contents of this call should be considered in conjunction with the company’s recent filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and the quarterly reports on Form 10-Q and current reports on Form 8-K, including any warnings, risk factors and cautionary statements contained therein.

Furthermore, the company expressly disclaims any current intentions to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise.

In order to aid the -- in the understanding of the company’s business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled on a table in today’s press release, announcing our first quarter 2022 results to the most comparable GAAP measures.

Management believes that adjusted EBITDA provides useful information to the investor, because management uses adjusted EBITDA, as a supplement to GAAP measures to further evaluate period-to-period operating performance, as well as the company's ability to meet future working capital requirements.

The exclusion of non-cash charges, including stock-based compensation, depreciation and amortization is useful in measuring the company's cash available for operations and performance of the company.

I will now turn the call over to the CEO of MusclePharm, Ryan Drexler. Please, go ahead.

Ryan Drexler

Thank you. Good afternoon. On the call today, I will provide an overview of our year-to-date accomplishments and why we’re positioned to continue growth in 2022. And then Sabina will review our financial results for the first quarter. After that, we will open up the call and take your questions.

We've had a strong start to 2022, and our top line performed to plan, with sequential revenue improvement in the first quarter, generating $13.1 million in revenue. We've generated $1.1 million in energy sales and margins for this product were an impressive 35% in the first quarter.

While still a small percent of our revenue, our MP Performance Energy Line has performed extremely well since its launch in September, and our confidence in this long-term growth remains high.

Since its launch, we have generated over $1.6 million in sales and in the first quarter, we more than tripled sales of MP Performance Energy from the fourth quarter of 2021. We – we expect MP Performance combined with Fitness Energy, watching this quarter will continue to become a larger percentage of our revenue base throughout 2022. As we expand our distribution for both lines, we will be on track to achieve our target of $30 million of annual sales in 2023 from these two lines.

Additionally, within our beverage segment, we are rolling out a Whey protein drink in the second half of 2022, and excited to bring our products to a fast-growing ready-to-drink RTD Protein Beverage Market. The global RTD Protein Beverage Market is valued approximately at $1.34 billion today, and expected to reach $2.26 billion by 2027. Expanding our beverage segment is a key part of our long-term growth plans, and we have been strategically building our MP Beverage team and product pipeline as we believe MusclePharm's time to disrupt key beverage markets.

I will turn the call over to Sabina.

Sabina Rizvi

Thank you, Ryan. Good afternoon and thank you for joining the call. I'll now discuss our results for the first quarter ended March 31, 2022. As outlined on our fourth quarter earnings call, we implemented a number of measures in 2021 to mitigate the supply chain shortages, which are affecting the entire industry. I'm happy to report that, this has set us up for revenue growth in 2022, and resulted in net revenue for the first quarter in line with our projections.

Our first quarter net revenue increased sequentially by 31% to $13.1 million from $10 million in the fourth quarter of 2021. We believe the measures we took in Q4, which include the reformulation of our top-selling SKUs, packaging changes and diversifying and broadening our co-manufacturing partners has enabled us to deliver this sequential revenue growth in Q1.

Additionally, our MP Performance Energy line accounted for $1.1 million of net revenue in the first quarter. And since its launch in September 2021, has generated over $1.6 million in net revenue. As Ryan stated, we are preparing to launch Fitness Energy in Q2, and I believe it will be met with equal success and these two new product lines will together generate solid growth in 2022 and have us on track to achieve our guidance of $30 million in annual net energy sales in 2023. We are encouraged to see our gross margins increased sequentially for the second consecutive quarter to 11.5% compared to 5% adjusted for the fourth quarter of 2021 and 0.2% in the third quarter of 2021. Additionally, margins for our MP Performance Energy line continued to be very strong with the segment delivering 34.8% gross margins in the first quarter. We have indicated in the past that as our MP Performance Energy and fitness lines become a larger mix of revenue, it will have a positive impact on our gross margins.

Operating expenses remained low at $4 million for the first quarter. Selling and promotion expenses increased by only 1% over prior year, primarily related to freight out and stock-based compensation related to our energy business. While we continue to see decreases in our office and IT expenses associated with the closure of our headquarters and warehouses, general and administrative expenses increased by 25% over prior year primarily driven by increased professional fees, stock-based compensation and bad debt reserves. Adjusted EBITDA in the first quarter improved to a loss of $2 million driven by the reformulated products, increased sales and margins and continued focus on operating expenses.

I will now turn it over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. And now I will turn the call back over to Mr. John Mills to read questions that have been submitted. Please go ahead, sir.

John Mills

Great. Thank you. The first question comes from an institution, will margins improve when you have both MP Performance Energy and Fitness Energy rolled out by the end of the year?

Sabina Rizvi

Hi, John, I'll take that. So as energy sales mix continues to grow, this will actually have a positive impact on our margins. In Q1, our energy margins were 35%, and we expect energy to continue to have stable margins above the 30% range, which will have a positive impact on the overall business as the energy segment continues to grow.

John Mills

Great. Thank you Sabina. Our next question is from a retail investor. What can you tell us about your bar market and plans for fiscal year 2022?

Ryan Drexler

Hey, John, it's Ryan. I'll take that. The bar markets last year was pretty tough for -- due to supply chain. So this year, we've found some new people, and we're going to continue with our Combat Crunch, focused on late either Q2 or Q3 production, and we will be back in stock in the -- for our bars.

John Mills

Yes. Thank you, Ryan. The next question has to do with your performance energy drink. It comes from an institution. MP performance has generated $1.6 million in approximately eight months since you rolled it out, and you stated you believe these lines can generate approximately $30 million in revenue in fiscal year 2023, are you still on that path to achieving that number?

Sabina Rizvi

Yes, I can take that, John. So Q1, as we mentioned in our release, was a very strong quarter with energy with over $1 million in sales. Very short time we've achieved over $1.6 million in sales. So this will continue to build, and we are still confident in meeting the guidance of $30 million in energy net sales in 2023.

John Mills

Very good. We'll pause just a moment to see if additional questions come in. Okay. And the next question comes from a retail investor. When are you planning to roll out your Whey protein drink line in the second half of 2022

Ryan Drexler

John, I'll take care – I’ll take that question. So we plan to roll out late summer, our drink, our whey protein drink. We have aligned, which we are going to announce with a really great partner, someone that's had really great success in the past on the strength. We believe our drink is not only the best tasting product out there, but we really believe that we're going to increase and really go after an ever-evolving market when it comes to the drink market.

We're very, very excited to -- we've gotten some samples. The samples, I feel that this product is probably the best tasting in the market. We're very excited about it. So we're really we're working on labels right now, and we are going to partner with some retailers on this product. So hopefully, late summer.

John Mills

Very good. We'll pause another moment to see if any additional questions come in. Ryan and Sabina, that is the end of the questions. I will turn it over to the operator for closing remarks.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.